Industrial market vacancy rate rises

An economic slump has resulted in more warehouse listings

Honolulu's industrial market had vacancy rate of 3.97 percent at mid-year, the highest it's been since 2002, as well as the third consecutive quarter of lost occupancy.

2008 Mid-Year Industrial Real Estate Highlights

» Oahu vacancy rate: 3.97%

» Average asking base rent: $1.26 psf/mo.

» Average operating expense: $0.30 psf/mo.

Source: Colliers Monroe Friedlander

Colliers' Mid-Year 2008 Industrial Market Report released yesterday cites the economic slowdown and a rash of additional warehouse listings for the market shift.

A total of 372,563 square feet of space has been vacated so far this year, resulting in negative absorption, meaning more space was emptied out than filled in the industrial market.

The pace of industrial job growth slowed to a crawl over the past year, while construction activity is also declining.

"This rise in cautiousness is beginning to affect many industrial business decisions to expand or relocate," according to the report. "As businesses shift into a conservative operating mode, major capital decisions relating to facility purchase, long-term lease negotiations or warehouse capital improvements are being postponed or reconsidered."

New industrial space came on the market in Waipio, where a 250,000-square-foot industrial condo project was completed, in addition to small bay listings at Kapolei Spectrum and Waipio Business Center.

Several large spaces that were vacated found tenants. The former Kilgo's hardware buildings on Sand Island, for example, were vacant last year, but have since been filled by Allied Builders.

For the first time in seven years, the weighted average net industrial asking rent fell to $1.26 per square foot per month -- 3.92 percent less than the record highs at year-end 2007.

At the close of 2007, Honolulu's average base monthly rent was at $1.31 per square foot per month, and the industrial vacancy rate at 3 percent.

The mid-year asking rent this year, however, is still 38 percent higher than it was five years ago, given that industrial rents were on a continual upward climb before 2008.

The average net operating expense at mid-year was 30 cents a square foot per month.

Due to more difficulty securing affordable financing, many commercial and industrial developments have been postponed, withdrawn or put on hold, according to the report. Land prices also continue to rise.

Colliers does not expect as much new industrial construction in the near future.

The softening in the industrial market will continue through third quarter 2009, the report said. Vacancy rates are expected to peak between 4.5 percent and 5 percent before cresting in 2010.